Get used to $4-a-gallon gasoline, analysts say

By ERICH SCHWARTZELPittsburgh Post-Gazette

Tuesday

Jan 31, 2012 at 12:01 AMJan 31, 2012 at 12:15 AM

Paying $4 per gallon at the gas station is painful, and analysts say it’s time to get used to it.

“People have this expectation that they will be paying $1 or $2 per gallon again,” said Patrick DeHaan, a senior petroleum analyst at GasBuddy.com, a fuel-price tracking website based in Minnesota. “And that’s unrealistic.”

DeHaan’s outlook for 2012 gas prices is enough to send anyone to the nearest bus stop (or even shoe store).

Iran might shut off a major oil thruway, Pennsylvania is definitely shutting down three refineries and the prospect of a painful year at the pump has politicians and analysts warning about the ripple effects of an additional expense in a recovering economy.

Analysts at GasBuddy.com expect 2012 to be a record-breaking year for prices in 16 of the nation’s top 20 markets.

The hardest hit? Chicago. The Second City is expected to be first in gas prices come Memorial Day, with prices topping out at $4.95 per gallon.

Prices can vary across the country because of different state and local taxes, as well as state-specific regulations that can increase costs for franchise owners who buy gas from oil firms.

Taxes affect the price in different areas. For instance, Pennsylvanians pay about 51 cents per gallon in federal, state and local taxes, DeHaan said. Drivers in nearby New Jersey pay about 30 cents per gallon in taxes.

This year’s difference in cost expected from week to week may be pennies per gallon, but the psychology of paying $4 per gallon can wear on consumers reminded of the expense every time they get behind the wheel, said Jeff Inman, associate dean of research and faculty at the University of Pittsburgh’s Katz Graduate School of Business and College of Business Administration and a consumer research expert.

Higher prices can force consumers to start cutting discretionary spending such as eating out, or convince vacationers driving to Disney World to choose a cheaper hotel on the way down to Florida, Inman said.

The worst-case domino effect, he said, would be if consumers cut back on other expenses so aggressively that companies see profits drop and are forced to cut jobs, which starts a vicious recessionary cycle.

“I don’t see that happening at $4.15 per gallon,” Inman said. “It has a bigger impact psychologically than it does on the household budget.”

Instead, it would take prices like those seen in Europe, where “petrol” can cost $9 per gallon, to introduce wholesale changes to an American culture that embraces the suburbs and hasn’t welcomed the mini-car marketplace, he said.

Meanwhile, the usual Middle East suspects have the petroleum industry bracing: Iran has threatened to shut down the Strait of Hormuz, an oil passageway that helps process almost one-fifth of the oil traded worldwide, according to the U.S. Energy Information Administration.

DeHaan said the Iran situation is far worse for the worldwide oil supply than last year’s coup in Libya. Any gesturing from Iran can be enough to spike prices.

That’s because franchise owners typically price gasoline in anticipation of future costs and expenses. Those charging more than $4 per gallon aren’t cheering the extra cash.